Navigating the Future: What does climate change mean for life & health insurers?

In 2023, the world witnessed unprecedented climate extremes, from scorching heatwaves to devastating wildfires, signaling a stark reminder of climate change's growing menace. These events are not just isolated environmental issues but harbingers of significant challenges for the health and life insurance sector.

• Wildfires and Air Quality: The Canadian wildfires, devastating over 120,000 km² of forest, underscored the urgent need for insurers to rethink risk models as air quality crises posed significant health risks, especially in several U.S. states.
• Heatwaves and Mortality: In Europe, the soaring death toll from heatwaves, particularly among the elderly, highlighted the vulnerability of specific demographics, stressing the need for targeted insurance strategies in light of increasing extreme weather events.

In insurance, Climate change related risks is mostly concentrated in property and casualty (P&C) business lines as well as investments. While the short-term consequences for health and life (H&L) insurers have so far been modest, this may change in the longer term as climate events become more frequent and severe.

Climate-related health risks fall into four main categories:

1. Acute Risks: Caused by extreme weather events like heatwaves, floods, and severe storms, affecting health immediately.
2. Chronic Risks: Arise from long-term exposure to harmful climate and environmental conditions.
3. Transition Risks: Linked to the shift towards clean energy, which can either decrease or increase health risks depending on the energy sources adopted.
4. Litigation Risks: Emerge from legal actions related to the health impacts of climate change, aiming to drive or deter climate mitigation efforts.

As the world grapples with a potential additional burden of USD1.1 trillion due to climate-induced health crises, the divide in healthcare capacity between wealthier regions and the rest becomes starkly evident. This disparity underscores the heightened climate-related health risks in less prepared settings.

The future impact of climate change on H&L insurance products

1. Actuarial and Market Considerations: For insurers, the unpredictability and varied nature of climate-related health risks pose significant actuarial challenges. Innovations such as wellness programs and parametric insurance emerge as promising solutions, focusing on prevention and risk reduction while navigating the complexities of product design and market readiness.
2. Societal and Policy Implications: Addressing climate-related health risks transcends methodological challenges, aligning with the insurance industry's goals for sustainability and inclusivity. The emphasis on prevention and public education highlights a path forward that balances risk management with broader societal benefits.

The way forward

A lack of data that maps climate events and patterns against incidences of mortality and morbidity hinders insurers’ ability to measure these risks.

There is currently no evidence to definitively state that climate-related risks are influencing the existing array of H&L insurance products. However, this non-effect is highly likely to be due to the lack of consistent and complete data. These recommendations aim to equip H&L insurers with the tools and strategies needed to navigate the complexities of climate change and its impact on health risks effectively.

1. Assemble Data Prospectively: Insurers should collect comprehensive, multi-sectoral data to better understand and predict future risks. This involves considering factors like regional heatwave likelihood, demographic vulnerabilities, infrastructure resilience, and health conditions.
2. Invest in Innovation: The industry is encouraged to explore innovative insurance models, such as parametric insurance, which requires understanding and quantifying the risk to manage potential large-scale events. Regulatory considerations are crucial due to the novelty of these approaches.
3. Enhance Policy Role: Insurers are advised to play a more significant role in the policy environment by educating the public on health risks from climate events and advocating for policies that address these challenges comprehensively.
4. Foster Public-Private Collaborations: Strengthening collaborations between the public and private sectors is vital to develop preventive strategies and actions. This could involve building early warning systems, improving training for clinical professionals on climate health impacts, and making greener investments to mitigate health risks, such as creating green spaces to reduce building overheating

(Disclaimer: the above views are author's own and do not reflect the views of EY or any of its member firms.)